Sometimes a blowout quarter just isn’t enough. That’s the lesson Priceline Group Inc (PCLN) stock investors are learning today, as shares of the online travel booking site plunge 9%-plus lower.
Before today’s selloff, PCLN stock was doing fairly well for itself in the markets: Shares were up 6% for the year to date and 7.5% in the past 12 months, both surpassing the returns of the S&P 500.
And while you might expect a first-quarter earnings and revenue beat to simply send Priceline shares surging higher, that was not the case. As we so often see, investors were far more concerned with future guidance than past results — and the guidance was not as rosy as expected.
PCLN Stock: High Expectations Proved Too Much
As noted, Q1 results were off-the-rocker good. Analysts were looking for earnings per share of $9.66 on $2.12 billion in revenue; instead Priceline’s EPS jumped 24% to $10.54, while revenue of $2.15 billion was up 16.8%.
Growth in room night reservations was called out by Priceline’s new interim CEO — former CEO Darren Huston left less than a week ago after an inappropriate relationship with an employee forced him to resign — as being a key growth catalyst for PCLN. That metric rose 31% year-over-year.
Of course, PCLN stock would ultimately succumb to underwhelming guidance, for the simple reason that investors are rightfully more interested in the future than in the past.
For the fiscal second quarter ending in June, analysts were expecting $14.98 in EPS from PCLN stock on revenue of $2.65 billion, up 16.4% year-over-year.
Instead, projections were nowhere near those numbers, with management calling for EPS between $11.60 and $12.50 on revenue growth between 7% and 14%. If you’re a PCLN stock owner looking on the bright side of life, you might note that the revenue growth range in particular is pretty wide, and the company may be guiding conservatively.
That’s true, but even at the midpoint of 10.5% revenue growth, Q2 revenue would come in at about $2.52 billion, far less than the $2.65 billion analysts expected. No doubt these projections will have to be revised downward.
So, PCLN stock is slumping on these muted Q2 views … but why exactly is Priceline expecting a bum quarter?
On the earnings end, Priceline is “looking forward to continued investments in product, service and branding that will drive long-term growth for our leading brands.”
Translation? Q2 will be a quarter of investment for Priceline, which gobbles up a bunch of capital and makes quarter-to-quarter-minded investors pissy. There’s good reason for the investment push, however, as Priceline hopes to burn its name into the mind of the consumer, who’s also now being wooed by hotels that are sick of paying PCLN fees to be listed on their website.
For the long-term investor, not much has materially changed. I don’t see consumers opting to check out individual hotel websites one-at-a-time en masse anytime soon, and travel is still booming.
As the worldwide leader in its industry, PCLN stock still seems like a good bet, especially at 15 times forward earnings.
That said, no one will fault you for staying on the sidelines and watching how this post-earnings action turns out.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
